Early loan growth revival
Despite a tough few quarters, several banks — particularly those that have historically been conservative — are beginning to see a pickup in loan growth. “Some banks are seeing early signs of acceleration, and NBFCs are seeing a clear bottoming out of credit-cost trends,” he said.Net interest margin (NIM) pressures also appear to be easing. “NIM trends are clearly bottoming out,” Chhaochharia noted, adding that many companies are more confident about the second half of the year being better than the first.
UBS analysts have not yet upgraded earnings estimates for banks, but Chhaochharia said the data points coming in look constructive. “It’s about early signs rather than clear signs. But taken together, they point to improving momentum,” he highlighted.
Incrementally more bullish post-conference
Asked whether he is more positive on the sector after the conference, Chhaochharia said, “Absolutely. And I think there is room for them to surprise and do well.”
UBS believes the sector is better placed to benefit from favourable credit trends, improving asset quality and cyclical loan demand in the months ahead.
Flows may not follow immediately
On whether foreign investors are ready to rotate into India, he said global sentiment toward India is improving, but large inflows are unlikely to come just because other markets experience volatility.
“At the margin, India can outperform or fall less, but that does not automatically mean meaningful flows will come in,” he said, explaining that global investors who lose money in markets like the US or Korea are not able to rotate away quickly.
Renewables, power capex also reinforced
Apart from financials, the strongest multi-year theme remains power and renewables capex. UBS’s estimates here are ahead of Street expectations and were reinforced during the conference.
“Across the supply chain, the level of activity is very strong, and this could surprise markets over the next three to five years,” Chhaochharia said.
However, consumption trends were mixed, with strength in pockets such as jewellery but no major surprises elsewhere.
Below is the excerpt of the interview.
Q: If you had to tell us three or four big takeaways from the UBS conference this time, what would those be?Chhaocharia: I think the first thing I would say is that we saw, after a long time, initial signs of optimism — still selective among corporates, quite a few financials actually, and also among some global investors. The way to put it is that it’s not as if global investors are waiting to jump in, but they are at least more engaged in looking at bottom-up ideas constructively. We have been seeing this a bit over the last two to three months, but at the conference, it was very clear that they are willing to engage.
Q: Anything else that really stood out for you that marks a change from what the situation was six months back?
Chhaocharia: Sectorally, financials — that’s where the optimism is. Again, it’s not a fully bullish commentary or anything, but there is clear optimism on both sides, from corporates as well as from investors. That’s one big takeaway from the conference, I would say.
Q: And they’re bullish that the jump we’ve seen in loan growth — courtesy GST 2.0, the festive season, etc. — will sustain? I mean, based on what you heard, is there enough for you to raise your EPS estimates for any of the banks?
Chhaocharia: Our analyst hasn’t raised estimates yet, but corporates have also seen a tough few quarters, so it’s not that they are jumping in with excitement saying, “Okay, we’ll have a great uptick.” The classical line is still: the second half should be better than the first half. But beyond the initial headlines, if you probe here and there, they are seeing early signs. Some banks are seeing a pickup in loan growth, particularly those that have historically been more conservative. Some NBFCs are seeing clear bottoming out of credit-cost trends. NIM trends are clearly bottoming out. So if you add all of that together, as market participants and in conversations with investors, it’s about looking at early signs rather than clear signs, then yes there is optimism.
Q: So you are incrementally more bullish on financials post the conference than you were before?
Chhaocharia: Absolutely. And I think there is room for them to surprise and do well.
Q: When you interact with foreign clients and participants who came in, no one dislikes India. No one is going to say, “We don’t like India.” The problem is they like other markets better — for valuations, the AI theme, etc. So how is that conversation shaping up?
Chhaocharia: The AI part is partly tactical. A lot of investors were playing that investment cycle or trade this year, and obviously, India didn’t present enough opportunities on that front. There are opportunities in the rest of Asia and, of course, the US. But is it a case where investors are comfortable that India will be fine from an AI or anti-AI perspective? It’s still a bit early. I don’t think investors are looking at India through a pro-AI or anti-AI lens.
Q: The reason I’m asking is — today the KOSPI ended with a 4% drop. A lot of these markets have run up so much, and then you realise how prone they are to shakeouts. Someone sneezes in the US — Nvidia or something goes off — and people rush to the exit. So, can that over-positioning or hyper-positioning start reversing? And then do investors realise: “Oh, I should be in India as well because these markets are prone to sharp volatility”?
Chhaocharia: I’ve heard from a few investors that India is an anti-AI trade, but my view — and my experience — suggests that’s not how it plays out. If investors lose money in the US or in KOSPI, they’re losing money. It’s not that they are able to rotate away in time.
Q: And when those markets do well, we anyway don’t do well. When they fall, there are all sorts of problems.
Chhaocharia: At the margin, India can outperform or not fall as much — like today is a good example. But does it mean meaningful flows are coming that will drive India up? That doesn’t happen like that.
Q: Any new sub-themes or ideas that emerged for you at the conference?
Chhaocharia: I wouldn’t call them new, but themes we have been bullish on and which were reinforced — and where our analyst estimates are ahead of the Street — and those include the broader power, renewables part of capex or supply chain ecosystem – and that was reinforced not just in company meetings at the conference, but also on panels and tours we had around it. That ecosystem will surprise investors and markets — not just in the next two quarters, but over the next three to five years. The level of activity in the broader ecosystem is very strong.
Beyond financials, consumption is a mixed bag — no big surprises. Some pockets are doing very well, like jewellery, including the outlook. But again, I wouldn’t say there are major new surprises.
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